Real Money

Bimini Capital Management Announces Fourth Quarter 2012 Results

The tables below detail the changes to the respective sub-portfolios, as well as the returns generated by each during the quarter. During the fourth quarter, purchases of $103.5 million, net of sales of $55.2 million and pay-downs of $2.6 million, increased the PT MBS portfolio by approximately $45.0 million. The capital allocated to the PT portfolio increased approximately $1.6 million during the three months ended December 31, 2012. Capital allocated to the structured MBS portfolio decreased by $2.6 million.

The Agency MBS market was impacted late in the third quarter when the Federal Reserve announced a third round of quantitative easing, or "QE3". The Federal Reserve began purchasing $40 billion per month of Agency MBS, plus reinvested pay-downs on their existing Agency MBS portfolio back into Agency MBS. The program is expected to remain in place until economic activity, specifically the level of unemployment, improves. During the fourth quarter Agency MBS prices sold off slightly after the initial spike upwards in price in late September. The Mortgage Bankers Association refinancing index surged to near 5,900 the week of September 28 th but then declined into year end, bottoming at approximately 3,500 the week of December 28 th. The Index has since risen to approximately 4,700, the level just before the QE3 announcement. The Freddie Mac survey decreased steadily after the QE3 announcement, falling from 3.75% the week prior to the announcement to 3.47% on December 7 th. The survey rate ended the year at 3.52% and was 3.70% on March 1 st. The impact on HARP eligible mortgages has increased as many servicers focus their attention towards these borrowers. However, the bulk of the increase in refinancing activity continues to be in lower coupon, newer, high quality loans originated after the HARP cut-off of May 31, 2009. The steepening of the US Treasury yield curve into year-end also impacted the survey rate and refinancing activity generally, in conjunction with the typical winter seasonal effect on prepayment activity.

Portfolio Activity for the Quarter

Structured Security Portfolio

Pass-Through

Interest Only

Inverse Interest

Portfolio

Securities

Only Securities

Sub-total

Total

Market Value - September 30, 2012

$ 113,387,586

$ 3,844,291

$ 8,507,099

$ 12,351,390

$125,738,976

Securities Purchased

103,461,639

1,980,416

--

1,980,416

105,442,055

Securities Sold

(55,178,049)

--

(2,196,066)

(2,196,066)

(57,374,115)

Loss on Sale

(262,152)

--

(157,197)

(157,197)

(419,349)

Return on Investment

--

(801,503)

(1,186,554)

(1,988,057)

(1,988,057)

Pay-downs

(2,593,989)

--

--

--

(2,593,989)

Premium Lost Due to Pay-downs

(164,393)

--

--

--

(164,393)

Mark to Market Gains (Losses)

(254,192)

221,237

(453,166)

(231,929)

(486,121)

Market Value - December 31, 2012

$158,396,450

$ 5,244,441

$ 4,514,116

$ 9,758,557

$ 168,155,007

The table below presents the return on invested capital for each sub-portfolio for the three month period ended December 31, 2012. The return on invested capital in the PT MBS portfolio was approximately 0.7% for the quarter. The return on invested capital for the structured MBS portfolio was approximately (4.6)%. The return was negatively impacted by negative mark-to-market adjustments and lower realized yields, particularly in the IIO sub-portfolio. The combined portfolio generated a return on invested capital of approximately (1.8)%. The decline in yields of the structured securities was the result of a combination of increased speeds assumptions, the result of QE3 and expected efforts by the government to expand efforts to refinance underwater borrowers, and demand for securities that offer the potential to hedge PT MBS securities when and if interest rates rise, an outcome the market expects at some point.

The following table presents the constant prepayment rate ("CPR") experienced on our structured and PT MBS sub-portfolios, on an annualized basis, for the quarterly periods presented. Assets that were not owned for the entire quarter have been excluded from the calculation. The exclusion of certain assets during periods of high trading activity can create a very high, and often volatile, reliance on a small sample of underlying loans.

Structured

PT MBS Sub-

MBS Sub-

Total

Portfolio

Portfolio

Portfolio

Three Months Ended,

December 31, 2012

5.0

36.8

28.0

September 30, 2012

8.8

34.9

26.7

June 30, 2012

1.1

36.4

34.7

March 31, 2012

6.5

28.9

23.0

December 31, 2011

14.1

33.7

31.1

September 30, 2011

13.4

22.8

20.9

June 30, 2011

11.8

13.0

12.7

March 31, 2011

12.0

19.1

17.2

Highlights of the MBS Portfolio

As of December 31, 2012, Bimini Capital's MBS portfolio consisted of $168.2 million of agency or government MBS at fair value. This portfolio had a weighted average coupon of 3.07% and a net weighted average repurchase agreement borrowing cost of 0.49%. The following tables summarize Bimini Capital's agency and government mortgage related securities as of December 31, 2012 and December 31, 2011:

(in thousands)

Weighted

Weighted

Percentage

Average

Average

Weighted

Weighted

Of

Weighted

Maturity

Coupon

Average

Average

Fair

Entire

Average

in

Longest

Reset in

Lifetime

Periodic

Asset Category

Value

Portfolio

Coupon

Months

Maturity

Months

Cap

Cap

December 31, 2012

Adjustable Rate MBS

$ 20,857

12.4%

3.27%

267

1-Sep-35

5.91

9.73%

2.00%

Fixed Rate MBS

49,846

29.6%

3.21%

180

1-Dec-40

NA

NA

NA

Hybrid Adjustable Rate MBS

87,693

52.2%

2.75%

356

1-Nov-42

99.58

7.75%

1.98%

Total Mortgage-backed Pass-through

158,396

94.2%

2.96%

289

1-Nov-42

81.58

8.13%

1.98%

Interest-Only Securities

5,244

3.1%

3.79%

213

25-Dec-39

NA

NA

NA

Inverse Interest-Only Securities

4,515

2.7%

6.10%

301

25-Nov-40

NA

6.31%

NA

Structured MBS

9,759

5.8%

4.86%

254

25-Nov-40

NA

NA

NA

Total Mortgage Assets

$ 168,155

100.0%

3.07%

287

1-Nov-42

NA

NA

NA

December 31, 2011

Adjustable Rate MBS

$ 12,181

13.4%

2.89%

233

1-Jan-41

4.36

11.07%

2.00%

Fixed Rate MBS

35,417

38.9%

4.84%

178

1-Nov-40

NA

NA

NA

Hybrid Adjustable Rate MBS

25,466

27.9%

3.57%

354

1-Dec-41

95.21

8.83%

2.00%

Total Mortgage-backed Pass-through

73,064

80.2%

4.07%

249

1-Dec-41

65.82

9.55%

2.00%

Interest-Only Securities

7,074

7.8%

4.64%

299

25-Dec-39

NA

NA

NA

Inverse Interest-Only Securities

11,004

12.1%

6.22%

300

25-Nov-40

NA

6.51%

NA

Structured MBS

18,078

19.8%

5.61%

300

25-Nov-40

NA

NA

NA

Total Mortgage Assets

$ 91,142

100.0%

4.37%

259

1-Dec-41

NA

NA

NA

(in thousands)

December 31, 2012

December 31, 2011

Percentage of

Percentage of

Agency

Fair Value

Entire Portfolio

Fair Value

Entire Portfolio

Fannie Mae

$ 163,116

97.00%

$ 58,628

64.32%

Freddie Mac

3,396

2.02%

27,267

29.92%

Ginnie Mae

1,643

0.98%

5,247

5.76%

Total Portfolio

$ 168,155

100.00%

$ 91,142

100.0%

Entire Portfolio

December 31, 2012

December 31, 2011

Weighted Average Pass Through Purchase Price

$ 105.74

$ 104.43

Weighted Average Structured Purchase Price

$ 6.00

$ 6.13

Weighted Average Pass Through Current Price

$ 105.89

$ 106.13

Weighted Average Structured Current Price

$ 5.84

$ 6.50

Effective Duration (1)

0.703

-3.492

(1) Effective duration of 0.703 indicates that an interest rate increase of 1.0% would be expected to cause a 0.703% decrease in the value of the MBS in the Company's investment portfolio at December 31, 2012. An effective duration of (3.492) indicates that an interest rate increase of 1.0% would be expected to cause a 3.492% increase in the value of the MBS in the Company's investment portfolio at December 31, 2011. These figures include the structured securities in the portfolio.

Recent Developments – HARP (Home Affordable Refinancing Program)

The Home Affordable Refinancing Program (known as "HARP"), was designed to increase refinancing activity of eligible loans – predominantly fixed rate mortgages with higher coupons (ranging from 5.5% to 6.5%) originated between 2006 and early 2009. Only loans originated before May 31, 2009 are eligible for refinancing under HARP. To date the impact of the HARP program has resulted in an increase in prepayment speeds with respect to loans eligible for the program; however, both the administration and FHFA have expressed a desire to see the effectiveness of the program increased. The Company owns securities collateralized by loans that fall within the program parameters of HARP and anticipates prepayment speeds on such securities to remain elevated.